U.S. Senators Dianne Feinstein, Ron Wyden, Patty Murray, Colleagues Call for Federal Student Debt Relief Amid Pandemic -Asks to Halt the Seizure of Tax Refunds from Federal Student Loan Borrowers in Default

Details: Last Updated: Friday, 26 June 2020 03:29; Published: Friday, 26 June 2020 03:29

June 26, 2020 - Washington – Senator Dianne Feinstein (D-Calif.) joined Senators Ron Wyden (D-Ore.), Patty Murray (D-Wash.) and a group of their colleagues to call on the Trump administration to halt the seizure of tax refunds from federal student loan borrowers in default and refund any payments seized contrary to CARES Act requirements.

(Left) U.S. Senator Dianne Feinstein (D-Calif.)

In a letter to Education Secretary Betsy DeVos and Treasury Secretary Steven Mnuchin, the senators raised concerns about the reported garnishment of federal tax and state refunds from Americans with defaulted student loans. The continued seizure of tax refunds, known as a tax offset, violates a provision in the CARES Act that suspends the collection of all federally held defaulted student loans until September 30, 2020. This provision was intended to provide relief to student loan borrowers experiencing financial strain during the coronavirus crisis.

“More than 1 million borrowers default on their loans each year. At a time when income inequality is increasing at a staggering rate, rents are skyrocketing and wages are stagnant, this massive debt on the backs of nearly 45 million Americans is too heavy to bear. Now, unemployment is at the highest level since the Great Depression and millions of Americans are facing impossible financial choices,” the senators wrote. “Congress recognized the financial strain on student loan borrowers and was clear in the CARES Act: student loan borrowers need relief during this ongoing economic upheaval caused by the COVID-19 pandemic.”

“We urge you to immediately stop all offsets of tax refunds and return these amounts to borrowers in accordance with the CARES Act,” the senators concluded.

In addition to Feinstein, Wyden and Murray, the letter was also signed by Senators Sherrod Brown (D-Ohio), Tom Carper (D-Del.), Jeff Merkley (D-Ore.), Tina Smith (D-Minn.), Dick Durbin (D-Ill.), Edward J. Markey (D-Mass.), Sheldon Whitehouse (D-R.I.), Elizabeth Warren (D-Mass.), Robert P. Casey (D-Pa.), Richard Blumenthal (D-Conn.), Kamala D. Harris (D-Calif.), Kirsten Gillibrand (D-N.Y.), Angus King (I-Maine), Mazie Hirono (D-Hawaii), Tim Kaine (D-Va.), Amy Klobuchar (D-Minn.), Jack Reed (D-R.I.), Patrick Leahy (D-Vt.), Brian Schatz (D-Hawaii), Charles E. Schumer (D-N.Y.), Cory A. Booker (D-N.J.), Bernie Sanders (I-Vt.), Tammy Duckworth (D-Ill.) and Robert Menendez (D-N.J.).

To fully understand how this situation has continued in violation of the CARES Act, the senators requested that the agencies respond to the following questions by July 10, 2020:

1. Did the Department of Education adequately and promptly notify the U.S. Treasury that it should cease collections of tax refunds from borrowers in default after March 13, 2020, including providing a list of those borrowers to Treasury?

a. If so, did Treasury immediately stop offsetting defaulted borrowers’ federal and state income tax refunds after it was provided a list of borrowers?

2. Please provide a detailed and documented timeline (beyond the press release referenced above) showing communication between agencies regarding all efforts to stop the collection of tax refunds after March 13, 2020.

3. Regarding federal tax return offsets since March 13, 2020:

a. How many federal student loan borrowers in default have been subject to federal tax refund offsets?

b. What steps has Treasury taken to return tax refunds taken from borrowers in violation of the CARES Act?

c. What is the total amount of federal tax refunds that have been offset?

4. Regarding state tax offsets since March 13, 2020:

a. How has the U.S. Treasury worked with states to ensure state income tax refunds are not seized?

b. How many federal student loan borrowers in default have been subject to state tax refund offsets?

c. What steps has Treasury taken to return tax refunds from borrowers in violation of the CARES Act?

d. What is the total amount of state tax refunds that have been offset?

5. For borrowers whose federal and state tax refunds were offset since March 13, have been seized, what is the status of returning those refunds?

6. When will the Department of Treasury complete a full refunds, and are there any borrowers for whom Treasury believes there will be delays in returning the funds?

The letter is available here and below.

Dear Secretaries DeVos and Mnuchin,

We write to express our deep concern that the Departments of Education and Treasury may be continuing to offset tax refunds from federal student loan borrowers in default. Congress was clear in Section 3513 of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act (P.L. 116-136) that all collections on federally-held defaulted student loans must be suspended until September 30, 2020. Unfortunately, the Administration has demonstrated significant and repeated flaws in implementing CARES Act requirements. For example, the wages of tens of thousands of borrowers continued to be illegally garnished by employers months after these collections were prohibited by law, and one of the Department of Education's largest student loan servicers incorrectly provided negative information to credit bureaus on nearly 5 million borrowers. In a time of extreme economic distress, borrowers simply cannot afford these failures. Therefore, we seek information regarding your Departments' implementation of Congress's mandate under the CARES Act to stop offsetting federal and state tax refunds to pay defaulted student loans.

The COVID-19 pandemic has caused the deaths of over 120,000 Americans and has wreaked economic havoc. Even before the pandemic, nearly 70 percent of college students took out loans for higher education, and those students graduated with an average debt of over $32,000. More than 1 million borrowers default on their loans each year. At a time when income inequality is increasing at a staggering rate, rents are skyrocketing and wages are stagnant, this massive debt on the backs of nearly 45 million Americans is too heavy to bear. Now, unemployment is at the highest level since the Great Depression and millions of Americans are facing impossible financial choices. Congress recognized the financial strain on student loan borrowers and was clear in the CARES Act: student loan borrowers need relief during this ongoing economic upheaval caused by the COVID-19 pandemic.

Section 3513 of the CARES Act clearly expresses congressional intent to lessen the economic impact of student debt during the national coronavirus emergency by suspending payments for federal student loan borrowers. Payments due for any loans made under part D and part B (that are held by the Department of Education) of Title IV of the Higher Education Act were suspended by Section 3 513 of the CARES Act. Subsection( e) of that section mandates the Secretary of Education to suspend "all involuntary collection related to the loan," which includes wage garnishments, reduction of any Federal benefits, reduction of a tax refund, or any other involuntary collection activity.

In order to fully understand the steps the Departments are taking to comply with the CARES Act and stop involuntary collection activity through tax offsets, we request that you respond to the following questions in writing by July 10, 2020: